OIL AND GAS:

'Very stretched' BLM pleads with appropriators to approve inspection fees

For at least five years in a row, the Bureau of Land Management has asked Congress to allow it to charge fees to inspect the roughly 100,000 oil and gas wells it oversees on public lands.

And for the past four years, it's come up empty.

Senate appropriators have endorsed the plan, but their House Republican counterparts have steadfastly opposed it and erased the fees from any final spending package.

BLM officials are hoping this year will be different.

They say they've mounted a more aggressive campaign to sway lawmakers. And they're buoyed by recent government watchdog and media reports that suggest BLM is underfunded and undermanned to police a growing number of wells on public lands.

An Associated Press investigation found about 40 percent of the wells drilled between 2009 and 2012 that were deemed "high priority" -- defined, in part, by threats to usable water, high-pressure zones or zones that contain hydrogen sulfide -- were not inspected, despite the agency's goal of inspecting all of those wells.

That leaves BLM with limited oversight of critical drilling, blowout prevention, casing and cementing processes, increasing the risk of spills.

BLM officials are pinning some of the blame on Congress, too.

Appropriations for BLM's oil and gas program, which includes inspections and enforcement, dropped 17 percent between fiscal 2007 and 2013, falling to $118 million last year before rebounding to $131 million in 2014.

Moreover, as oil and gas production soars -- granted, mostly on state and private lands -- the private sector is paying more for petroleum engineers, siphoning some from BLM.

And why wouldn't they leave? Starting salaries for engineers in industry in North Dakota, home of the prolific Bakken Shale, are more than twice those of mid-level BLM engineers, according to the Government Accountability Office. Industry pays up to 70 percent more for prospective BLM inspectors, it said.

"We have a system that's very stretched," BLM Director Neil Kornze said in an interview earlier this month. "The market is so hot that industry is hiring away a lot of our talent."

BLM currently has fewer than 10 senior petroleum engineers who have been with the agency for more than 10 years, Kornze said.

As in years past, BLM's fiscal 2015 budget asks Congress to allow it to collect about $48 million annually for onshore well inspections. The fees would range from $700 for leases with no wells but some surface disturbance to $9,800 for each lease or agreement with at least 50 wells.

BLM insists the fees would not be onerous. Operators already bid heavily to acquire lease tracts and pay $6,500 for each drilling application they submit, in addition to modest rental fees and royalties on production.

"I don't understand why we can't ask the oil and gas industry who profits so handsomely from the extraction of oil and gas from public lands to pay a reasonable inspection fee to ensure safe and efficient operations," Rep. Jim Moran (D-Va.), ranking member of the House subcommittee that funds Interior, said during a BLM budget hearing in April.

"I don't think they'd particularly care," Moran said. "It's a minuscule expense to them, but it would mean a great deal in terms of BLM's ability to manage those lands."

Yet the proposal still faces powerful resistance among Republicans and industry.

Rep. Ken Calvert (R-Calif.), the chairman of the Interior spending subpanel, said earlier this year that the fee proposal "doesn't appear to be a win-win," especially since it would do nothing to reduce permitting timelines and increase development on public lands, where leasing has dropped and production growth has lagged compared to non-federal lands.

And Sen. Lisa Murkowski (R-Alaska), the ranking member of the Senate panel that funds Interior, opposes the measure "because it makes federal lands less competitive compared to state and private lands," said spokesman Robert Dillon.

The Denver-based Western Energy Alliance, whose roughly 480 members would stand to be affected most by the fee, is also steadfastly against it.

Kathleen Sgamma, the group's vice president of government and public affairs, said the oil and gas industry pays dozens of times more to the federal government in lease bids and royalties than what BLM spends administering its onshore oil and natural gas program. Industry faces more costs through leasing and permitting delays and a bevy of other land-use restrictions that don't exist on state and private lands, she said.

"There's no need for BLM to come back to industry to get more money," she said.

Industry is not yet in unanimity on the issue, however.

The American Petroleum Institute, which represents major companies, some of which operate on public lands, said it has "reserved judgment" on the BLM proposal until more is known about how other BLM regulatory actions -- including, perhaps, rules for hydraulic fracturing and methane escape -- are known.

"We believe proposals like this should move through the legislative process so lawmakers and the public can understand and weigh their goals and impacts," said API spokesman Brian Straessle.

Moran said he has little hope his House colleagues will approve the fees this year.

"The influence of the extraction industry is still too high, as well as the prevailing ideological view of the least government, the least regulation, the least taxes, the better," he said.

If that's the case, the proposal's fate will depend in large part on how hard Senate Democrats fight for it when negotiating a spending bill with the House, whenever those talks begin again in earnest. Few expect Congress to pass any long-term spending bills before the election.

It can't hurt that BLM's top two officials are also former Senate staffers. Kornze served as a public lands aide to Majority Leader Harry Reid (D-Nev.) for several years before joining BLM.

And Linda Lance, BLM's top political appointee beneath Kornze, previously served as senior counsel for former Senate Energy and Natural Resources Chairman Jeff Bingaman (D-N.M.).

Kornze said the inspection fee is among BLM's two top legislative priorities this year, the other being a budget proposal to establish a congressionally chartered BLM foundation.

"There's a real sense of urgency within the BLM and the department on this this year," Lance said in an interview.

In making its case to Congress, BLM and other fee advocates are likely to point to Congress' decision in the wake of the Deepwater Horizon disaster in the Gulf of Mexico to allow the Bureau of Safety and Environmental Enforcement to collect about $65 million annually to inspect offshore rigs.

"It's similar to offshore," Kornze said. "If somebody has a well that we have to go and inspect, and they're getting benefit from that activity on public lands ... they should cover the cost of that inspection and enforcement."

Sgamma said Kornze is comparing apples to oranges.

Offshore and onshore exploration brings different risks, she said. Resources are better mapped offshore, and they are considered conventional, she said. "We have a lot of unconventional resources that are more expensive to produce," she said. "We're exploring areas that are a lot less known."

Congress did take a significant step to improve BLM's inspection capacity earlier this year with passage of its omnibus fiscal 2014 spending bill, which allowed BLM to increase inspector salaries from $35,000 to around $44,000. BLM plans to exercise that authority.

But that's still far short of the $90,000 starting salary BLM said industry offers petroleum engineers. In addition, paying more for some inspectors may help BLM retain those employees longer, but without more funding overall, it would mean BLM could retain fewer employees overall.

BLM could also decide to allocate more of its oil and gas budget to inspections, but that could come at the expense of other leasing and permitting functions. Out of the $81 million Congress appropriated this year for oil and gas management -- there is a separate line for permitting -- BLM is spending $38 million on inspections and enforcement.

The proposal to collect $48 million in new fees would relieve taxpayers of that cost and allow for an additional $10 million to be spent on inspections, BLM said. It says it would boost its current team of 142 inspectors.

"We have a limited pie in terms of what we can work on, so inspection and enforcement has to come first," Kornze said. "We have to take responsibility for what's out on the landscape."

In the meantime, BLM is pursuing more standardized cooperation with states to improve inspection efficiency, Kornze said. For example, if a remote cluster of state-regulated wells includes one stranded BLM well, state regulators could inspect it. BLM could do the same for state wells surrounded by BLM wells.

GAO faulted BLM for not having such formal agreements in place in some states with significant oil and gas development activities, such as New Mexico, North Dakota, Oklahoma or Utah.

One such agreement was struck in Colorado in 1999 for state regulators to inspect federal wells. BLM is pursuing similar agreements in New Mexico and Utah, GAO said.

Twitter: @philipataylor | Email: ptaylor@eenews.net

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